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Markets

Bund falls as euro zone agrees Greek rescue plan

LONDON : German government bonds fell early on Friday and peripheral bonds were seen rising after euro zone leaders agre
22 Jul 2011

German_bondsLONDON: German government bonds fell early on Friday and peripheral bonds were seen rising after euro zone leaders agreed on a second rescue package for Greece but uncertainty remained over some details and whether it would solve long-term deficit problems.

An emergency summit of leaders of the 17-nation currency area on Thursday pledged to conduct a second bailout of Greece with an extra 109 billion euros ($157 billion) of government money, plus a contribution by private sector bondholders estimated to total as much as 50 billion euros by mid-2014.

The German Bund future fell 20 ticks on the day to 126.81.

"On the surface it looks okay, peripheral-supportive," said a London trader. But he added: "I still think there are fundamental problems in peripherals."

The crisis plan also included giving broader powers to the euro zone financial rescue plan and analysts sought details on whether this meant any changes to the EFSF's size.

"Possibly the most disappointing aspect is that there is no specific reference to upsizing of the EFSF," said Barclay Capital strategists in a note.

Investors would now scrutinize any comments by rating agencies to see whether they would downgrade Greece's ratings to so-called selective default. Rating agencies have played hard ball throughout the crisis and have said that they would see most private sector involvement in a Greek rescue plan as coerceive and therefore worthy of such a rating.

Some analysts expected market reaction to a downgrade to selective default to be muted, given that markets and peripheral bond yields were already largely pricing some for of Greek debt restructuring.

Copyright Reuters, 2011